As the ceremonial handkerchiefs fell and the dust settled on a busy sine die, a bright piece of legislation emerged: House Bill 7179 (the "Bill"). This Bill, which was the last bill passed this legislative session, is a ground breaking piece of legislation that establishes Florida's Property Assessment Clean Energy (PACE) program.

Florida is Keeping Pace: House Bill 7179

Introduction.As the ceremonial handkerchiefs fell and the dust settled on a busy sinedie, a bright piece of legislation emerged: House Bill 7179 (the “Bill”). This Bill, which was the last bill passed this legislative session, is a ground breaking piece of legislation that establishes Florida’s Property Assessment Clean Energy (PACE) program.

This legislation was modeled on a similar program that was originally adopted by the City of Berkeley, California. That program was so popular that it has since been adopted by 16 different states around the country in one form or another. This article will explain the various provisions of the Bill, legal issues surrounding the creation and implementation of a PACE program, and other potential challenges.

Eligible Improvements and Establishment of the PACE Program.The Bill creates Section 163.08, F.S., which provides, in part, that local governments may levy non-ad valorem assessments to fund “qualifying improvements.” Qualifying improvements are defined as: (1) energy conservation and efficiency improvements (e.g. installation of energy efficient cooling systems); (2) renewable energy improvements (e.g. installation of solar panels); and (3) wind resistant improvements (e.g. hurricane shutters). These improvements are required to be installed by a properly certified or registered contractor. Consequently, the creation of a PACE program could potentially provide a strong stimulus for the construction industry here in Florida.

Under the Bill, local governments can adopt either an ordinance or resolution which will allow local governments to provide the upfront funds to cover the costs for the qualifying improvements. Property owners that reside within the boundaries of a local government that creates such a program will have the opportunity to voluntarily apply to the government to receive the funding. All different types of uses on properties are eligible to participate in a PACE program. The local government’s investment in the property will be secured by a non ad-valorem assessment that would constitute a lien on the property of equal dignity to taxes, which means it will have super priority in the event of foreclosure of the property.

Satisfying the Special Benefits Test.Prior to the Bill, there was no express grant of authority for local governments to assess properties to finance such qualifying improvements. However, local governments do have broad home rule powers granted by the Florida Constitution, which may have implicitly permitted such assessments. Under Florida common law, a special assessment must pass the “special benefits test” in order to be valid. In order to satisfy this test the following two requirements must exist: (1) the property assessed must derive a special benefit from the improvement or service; and (2) the assessment must be fairly and proportionally assessed among the properties receiving the special benefit.

When examining whether a property being assessed would receive a special benefit, Florida courts examine whether the real property would increase in value as a result of the improvement or service. In order to ensure that the special assessments contemplated by the Bill are valid, the Florida Legislature expressly provided that properties improved with energy related improvements would receive a “special benefit” by reducing the property’s burden on energy consumption, and in the case of wind resistant improvements such properties would receive a “special benefit” by reducing the property’s burden from potential wind damage. Studies have shown that reducing ones dependence on fossil fuels would indeed increase property value. For example, ICF Consulting Group concluded in a 1998 study that every $1 reduction in annual energy costs would increase a home’s value from $10 to $25.

Furthermore, installing wind resistant improvements would also increase the value of a property. For example, the installation of hurricane shutters can decrease a property’s windstorm insurance, which in turn would increase the value of ones property. As such, the installation of qualifying improvements would provide a special benefit to the property while also increasing the value of the property. Moreover, the “special benefit” would be fairly and proportionally assessed among property owners given that the amount of the assessment would equate to the total costs of the improvements spread over the timeframe of the financing. Accordingly, a special assessment imposed, pursuant to the provisions of this Bill, would be valid under Florida law.

Financing the Qualifying Improvements.In order to allow maximum flexibility in financing the upfront costs, the Bill affords local governments the option of either issuing debt (e.g. bonds) or using a third party vendor (e.g. banks). In addition, the Bill also provides significant assistance to local governments by allowing local governments to enter into a partnership with one or more local governments for the purpose of providing the upfront financing. Finally, it is also worth noting that the Bill allows a variety of entities (both for-profit and not-for-profit) to administer the program should the local government choose not to do so directly.

Potential Challenges to the Establishment of a Successful PACE Program.There are several potential challenges to creating a successful PACE program. Some of the more significant challenges are as follows: (1) ensuring that there are attractive interest rates on the borrowed money; (2) determining that existing structures can handle the installation of the qualifying improvements; (3) obtaining the mortgagee’s consent to the liens and loans; and (4) understanding the economic demographics of the PACE program area. In addition to these challenges, each PACE program will have its own unique issues and challenges that will need to be examined and evaluated by the local government prior to the creation of their own program.

Conclusion.The Bill is one of the most substantial pieces of practical, “green” legislation to come out of Tallahassee in recent years. Hopefully, it is an indication that Florida’s Legislature intends to keep “PACE” with more cutting-edge green business initiatives going forward.

BioChad S. Friedman, is a senior associate with the firm Weiss Serota Helfman Pastoriza Cole & Boniske, P.L. He focuses his practice on representing local governments and developers in land use and zoning matters. Mr. Friedman received a B.S.BA., with honors, from the University of Florida and his law degree, cum laude, from Stetson University College of Law. MacAdam J. Glinn is an associate with the firm Weiss Serota Helfman Pastoriza Cole & Boniske, P.L. He is a LEED AP, and his practice is focused on governmental procurement and construction law, representing both public and private clients. Mr. Glinn received his B.A. from Kenyon College and his law degree from Florida International University College of Law, where he was recently elected President of their Alumni Association Board of Directors.

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